SIGHTING: Awaiting the next act in the market drama

What triggered this year’s market fall was more than the usual suspect — Fed tightening. Rather, it was the realization that this tightening foretells the end of an era. With inflation resurgent and anything but transitory...the Fed cannot easily back off to reassure investors, as it has for over three decades....

[A] Fed rescue [for the market] is highly unlikely, unless the economy skids into recession and takes the wind out of inflation. A recession would, however, spell even deeper trouble for the market....

Of the 15 bear markets [going back to 1926], 11 coincided with recessions, including six of the last seven, dating to 1970. Bear markets...accompanied by recessions saw a median decline of 36% over 18 months, compared with 31% over 10 months for those that were not....

The reason bear markets often pause for intermission is basic: markets do not move in straight lines, and it takes time for entrenched investor psychology to break....

Given all the risks lurking in the wings — persistent inflation, slower growth, bubbly traders — it would take a magical outcome for the next act [in this market drama] to be shorter or less severe than the typical bear market of the past century.

– From a 6/06/22 column by Rockefeller International chairman Ruchir Sharma published in the UK’s Financial Times. Read more via bit.ly/3ORY4Xn.